Knowing your current market share is important. It tells you something about how well you are doing relative to the competition. But anticipating what your future market share will be is more important. After all, your current market share is a result from past actions, while the only thing you can still influence is your future market share.
But how to predict your market share and that of competitors? The conventional way would be to take current market shares as a starting point and add a few percentages to some players while reducing those of others. This could give relatively good results as long as nothing changes substantially. If there are no technological breakthroughs, no changes in customer demands, and no changes in everyone’s offerings, this could work.
But many industries are not so predictable. They do face new technological breakthroughs, changing customer demands and new offerings in the market. In such circumstances, the conventional approach doesn’t really help you. But how then to create reliable predictions? Of course, this can only be done if there is a bit of reliable information of the kind of changes that will come. If you have no idea about which new technologies will be there, how customer demands will change or what kind of offerings your competitors are working on, any prediction will be highly unreliable.
As far as you have that information, though, a better approach is possible: determining your and your competitors’s value share. I introduced you to the notion of value share in my previous post. As argued there:
“your value share indicates which part of the total value that you could possibly offer to customers you are actually offering. It tells you how well your offering (product or service) aligns with what your customers need in comparison to your competitors’ offerings. If your offering matches customer needs better than your competitors’ offerings you have a high value share. And if your competitors’ offerings are better aligned with customer needs than yours, you’re ending up with a lower value share then them.”
With the right approach, calculating your value share is rather easy. Not as straightforward as determining your current market share, but not too complicated either. It takes the following three steps:
- Using the PQDF framework introduced earlier, you map your customers’ preferences in the next relevant period. This means you identify how important the eight value dimensions are them. For example, you assess whether they find price more or less important than quality, whether flexibility is more or less important to them than delivery, and so on and so forth.
- You then map how well you and your main competitors perform on these eight dimensions. So, you score your own offering, as well as those from your main competitors. Of course, when you look ahead into the future, you should focus on your and their future offerings, not just on what is offered today. This gives you information about everyone’s relative performance.
- You calculate everyone’s value shares. While the exact formulate to calculate this would require some additional details and at least a bit of spreadsheet work, the core idea is simple: you create a weighting based on the customers’ preferences and using that weighting you score how well everyone performs and translate that into a percentage. So, in the hypothetical (clearly non-existing) case of the customer caring exclusively about quality, and everyone except you would score a 0 for quality, you would have a 100 % value share – because you would be the only creating relevant value.
Even though – or exactly because – it is simple, your value share is a pretty strong and interesting indicator of how well you do. Not in terms of current revenues or market share, but in terms of offering something that customers want, and that stands out compared to the competition. And that’s for a large part what business is about in the first place.